Treasuries Finish Higher ahead of Greenspan Comments

Traders overlooked strong economic data and pinned their hopes on a bond-friendly speech from the Fed Chief on Friday

Treasuries enjoyed a short-covering pop toward August range highs on Thursday, the day before Federal Reserve chairman Alan Greenspan speaks before his Fed peers in Wyoming, despite the upward revision of second-quarter gross domestic product. Positioning ahead of the keynote speaking event of the week dictated the firmer tone, supported by reports that Greenspan could be bond-friendly on Friday even if he acknowledges a brightening economic picture.

Washington Post Fedwatcher John Berry fanned those assumptions by reviewing criticism that the Fed had "mystifyied" the markets. Bond fund PIMCO managing director Paul McCulley said he expected some "drive-by transparency" from the Fed chairman as well. A record 0.15 duration extension on the Lehman bond index Friday in the wake of the huge quarterly refunding also encouraged some front-running of month-end demand.

Late in the session, news that the greater part of central London was blacked out by a transformer outage put some juice in the late bid, though terrorism was ruled out. The September bond closed 1-10/32 higher at 107-20 after bouncing ahead of 106-00 support, while the 2-year note and 30-year bond spread steepened back out 5 basis points to +330 basis points after flattening to +325 basis points on the 2-year When Issued roll. Stocks kicked higher into the close, while the dollar was collared in a tight range.

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